March FOMC Recap: The cycle is ending not per the Fed’s accord (and that has markets downbeat) …

Statement Recap: The Fed raised rates at this meeting by the largely anticipated 25bps to 5-5.25% (matching the 2006 peak). And the re-writing of the policy paragraph was the first sign the Fed has likely moved to a pause.

Presser Recap: Started neutral to hawkish, ended dovish and on the stranger side. Chair Powell reiterated the 3 hurdles that are needed for the Fed to continue tightening – but from our vantage point – the bars are set high.

Market Implications: If the Fed is truly done, after the intensity of the past year, it feels like this cycle has screeched to a stop in a very anticlimactic way, perhaps that’s the goal. We argue staying on hold for longer will prove equally challenging to hiking – there is clearly a tug of war building between markets and the Fed. We’ve had moments where they are on hold (2006-07) that set the stage for even higher vol if markets go risk-off and rates rally. Net, we still think liquidity thins out this summer (impacting risk assets) and that credit is now under the microscope. That said, if they are truly done and bank issues fade, vols should collapse providing a good setup for MBS.

Please see the attached PDF for the full write-up and the DEF-CON table of the next potential CB actions vs our view of the macro enviro…

Source: MUFG Securities